Vicarious Surgical Inc

NYSE:RBOT

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to Vicarious Surgical's Third Quarter 2023 Earnings Conference Call. My name is Kate, and I will be your operator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Kaitlyn Brosco with Vicarious Surgical for a few introductory comments.

[Kaitlyn Brosco, executive]

Thanks, Kate, and thank you all for participating in today's call. Earlier today, Vicarious Surgical released financial results for the 3 months ended September 30, 2023. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements.

All forward-looking statements, including, without limitation, those relating to obtaining approval for the Vicarious Surgical System and timing for any such approval, our operating trends and future financial performance, expense management, market opportunity and commercialization are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.

Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors set forth in our Securities and Exchange Commission filings, including our most recent Form 10-K and Form 10-Q. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 13, 2023. Vicarious Surgical disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

With that, I'll now turn the call over to Adam Sachs, Chief Executive Officer.

[Adam Sachs, executive]

Thanks, Kate, and thank you, everyone, for joining us. The third quarter brought several successes for our business, but also introduce new challenges. Our successes included the announcement of our fourth hospital system partnership with Intermountain Health, as well as completing a $47 million equity follow-on offering that significantly bolster our balance sheet and meaningfully extended our cash runway.

Further, we are pleased with the significant progress made within the individual Version 1.0 subsystem builds currently our surgeon console, patient cart, robotic instruments and camera components are all built and functioning at subsystems. Conversely, we also experienced some setbacks, challenging market conditions and the resulting pressure on our business drove us to make the difficult decision to once again downsize our team and reduce future planned spending in order to prioritize capital efficiency and better ensure our long-term success.

Additionally, as we enter the initial system integration process, we identified certain software and hardware components of the V1.0 System that will require additional development efforts in order to ensure system compliance, reliability and safety, ahead of safety, ahead of formal verification and validation testing.

With the impact of the cost-cutting initiatives, combined with some integration challenges, we predict a 12- to 18-month delay in the overall program. We believe this will ultimately push the completion of the V1.0 build and integration to fall of 2024, and our de novo submission to early to mid-2026.

Developing a surgical robot is complex and capital-intensive. It involves building multiple medical devices and integrating them as one to perform precise procedures safely and reliably. But we always have them, and remain committed to delivering the best product possible for surgeons and hospitals. We understand the importance of this announcement, and we'll continue to provide updates as we progress through the integration process and address existing software and hardware challenges. We have a powerfully differentiated technology and a unique opportunity to revolutionize robotic surgery.

Over the recent months, we've had the opportunity to attend medical meetings, such as the American Hernia Society as well as our internal hospital partner summits. Throughout these engagements, one common theme emerged; surgeons and hospitals are hungry for a new truly differentiated surgical platform. And even more importantly, there is strong excitement around the unique Vicarious Surgical offering. Despite our recent challenges, I continue to be enthusiastic about our mission and our potential to improve patient lives.

With that, I will now turn the call over to Bill Kelly to review our financial performance.

[William Kelly, executive]

Thanks, Adam. Over the course of this year, we have taken the necessary steps to appropriately adjust our costs to better align the challenging economic conditions we and other similarly stage companies have been and are continuing to experience.

That being the case, total operating expenses for the third quarter of 2023 were down slightly at $21.4 million compared to $22.2 million in the third quarter of 2022. General and administrative expenses as well as sales and marketing expenses were down year-over-year. G&A expenses in the third quarter were $6.9 million compared to $8.1 million in the prior year quarter. And sales and marketing expenses were $1.4 million in the third quarter compared to $1.9 million in the third quarter of 2022.

The only operating expense line item up year-over-year was R&D as we continue to invest in the critical product development aspects of our business. R&D expenses for the third quarter were $13 million, up 8% compared to $12.1 million in the prior year. GAAP net loss for the third quarter was $15.7 million, equating to a net loss of $0.10 per share. This compares to a net loss of $24.7 million or a net loss of $0.20 per share, respectively, for the same period in the prior year.

Adjusted net loss for the third quarter of 2023 was $20.4 million equating to an adjusted net loss of $0.12 per share as compared to an adjusted net loss of $21.7 million or an adjusted net loss of $0.18 per share for the same period in the prior year. For a reconciliation of all non-GAAP measures to GAAP, please review our earnings press release.

At the end of the third quarter, cash equivalents and short-term investments were approximately $110 million, including the $47 million in gross follow-on proceeds. Excluding these proceeds, third quarter cash burn was $16.8 million and we now expect full year 2023 cash burn to be between $60 million and $65 million, which is on the higher end of our previously communicated guidance range. Taking into account our recent cost-cutting initiatives, we now estimate preliminary full year 2024 cash burn to be between $40 million and $55 million and cash runway out to Q1 2026.

I'll again reiterate Adam's sentiment that the third quarter brought both new successes and challenges for the business. but we remain committed to acting in the best interest of shareholders and therefore, have taken necessary steps to better position the company to be successful in the long run.

I'll now turn the call back over to Adam for closing remarks.

[Adam Sachs, executive]

Thank you, Bill. I'd like to close by thanking all Vicarious Surgical employees for their hard work and dedication. Although there are still challenges that remain, I am confident that our team will rise to the occasion and deliver an exceptional product. There is still much to be excited about.

With that, we'll be happy to take questions. Kate?

[Operator]

[Operator Instructions] The first question will be from the line of Ryan Zimmerman with BTIG.

[Ryan Zimmerman, analyst]

So I guess to start, wondering if we can kind of walk through the milestones with the impact of timing in terms of a clinical trial, when you expect to complete that? And most importantly, do you think you have sufficient cash to get through that trial based on the timing you just said, Bill, first quarter '26 before you submit for your de novo clearance?

[Adam Sachs, executive]

Thanks for the question, Ryan. So to start with the milestones that we're looking at into the near future. Some of the most important milestones that we'll be having over just the next 12 months will be around our V1.0 System. So we're in the midst of integration right now. We're hitting some speed bumps as we bring all of these subsystems together, but we expect them to be up and running fairly shortly, and we'll be doing our first cadaveric procedures with the system next spring.

We're then thinking that likely will have some remediation to perform with our system, and we'll be doing that over the summer. And that's all in anticipation of our first clinical patients in our first clinical use, which will be in mid- to late 2025 size. So that's getting pushed back approximately 12 months. And that will all be with multiple clinical patients following that in our OUS clinical trial and then an FDA de novo submission in early to mid-2026.

And before I hand it over to Bill, I'd also like to emphasize that in the entire goal of these changes was to make our company significantly more efficient and more streamlined to give us to get us as far as possible with the capital that we have, given our current market cap and the huge change in ratio of burden to market cap that occurred over the last quarter. So Bill?

[William Kelly, executive]

Yes, just to echo that, I think we want to make sure that we remain prudent with our fiscal spend. And that's really the lens that we continue to look at our spending this quarter as we always do. So as we have been given guidance that cash burn will be $40 million to $55 million in 2024, that should get us into 2026 as well.

[Ryan Zimmerman, analyst]

And then just more specifically, what did you cut back on and just going from $60 million to $65 million down to $40 million to $55 million. What that -- what's the delta that you're giving up there?

[Adam Sachs, executive]

So we made pretty significant cuts to our team as well as to external spending. Within our team, we've had a very large change over the course of this year, including 2 reductions overall, to the total team size. The first reduction, as you'll recall, was really targeted at non-R&D functions and then decreasing external R&D spending. And then this was significantly R&D functions as well as significant outsourced R&D spending that was throughout the budget. Most of the functions that we've cut are functions that are parallel effort functions where we're working on remediating things that we expect to come up, taking the top 10 issues or areas like that.

And coming up with remediations in anticipation challenges. Instead, we're going to do this in a much more serial, more capital efficient but slower method of waiting until the issues come up when I am remediating them at that time.

[Operator]

The next question will be from the line of Adam Maeder with Piper Sandler.

[Adam Maeder, analyst]

Maybe just to start, I guess the first one will be following on Ryan's question just on cash runway and maybe I'll ask it a little bit different, but the IDE study for ventral hernia, do you guys have any kind of just rough ring fence around spend there? I mean how do we think about the cost of that study? And then I have a follow-up or two.

[William Kelly, executive]

Yes. We haven't given the external guidance on what that would be. But as we have talked about, it's going to be about a 30 to 60 patient trial, probably closer to the 30 side, hopefully. So it's within the guidance that we would have earned that we provided here. It's not -- it's probably less than a month's worth of burn.

[Adam Maeder, analyst]

That's helpful, Bill. And then I guess just in terms of the integration process and trying to better understand exactly kind of some of the bottlenecks or speed bumps that you're hitting. I heard comments referring to both software and hardware components. Maybe just flesh that out for us in a little bit more detail and what's being done to remedy those.

[Adam Sachs, executive]

Yes. So the V1.0 System, as we mentioned in the past, is kind of ground-up rearchitecting of the Beta 2 system. The Beta 2 was the final prototype had all the functionality we needed, got rave reviews from our hospital partners and surgeons. And over the course of the last 1.5 years has been rearchitected and redesigned it into the Beta 1.0 system product that we have today. That system, the way to think about it is it's somewhere around 8 or so depending on how you slice it, different fairly complex medical devices, patient cart, surgeon console, arms, the guy, the camera, et cetera.

And each of those has been designed by their own subsystem team. brought up and is running effectively. And as they're all being integrated together, hence, we use the term integration phase, we're starting to encounter some bugs and some issues across the system. So overall, most components are functioning effectively, but we're starting to counter some software challenges, which are then as things come up, uncovering some hardware challenges. There's nothing that's particularly significant.

Hence, why we're looking at instead of around now having it integrated looking at next spring. So really just a 1 or probably 2 quarter delay there and the rest being the anticipated impact of reduced spending and our inability to preemptively resolve challenges that come up.

[Adam Maeder, analyst]

That's helpful color. Thanks, Adam. And if I could just sneak in one more, another kind of follow-on to Ryan's question just around the organization. Can you be a little bit more specific in terms of what the R&D org looks like kind of at the beginning of the year versus where we are today? Just trying to get a better understanding for kind of the magnitude of the reduction in how many folks are currently working on the development of the system?

[Adam Sachs, executive]

I don't have the exact numbers in front of me, but it is -- we started the air ballpark of 230 people and reduced to about 130, and that is just the internal. We obviously indexed more on external reduction than internal reduction for capital efficiency reasons.

[William Kelly, executive]

I would say if you look at people touching the product between operations, quality, R&D, all those sorts of things, that's probably 70%, 75% of the business are people touching product -- still in this reduced headcount.

[Operator]

The next question will be from the line of Josh Jennings with TD Cowen.

[Joshua Jennings, analyst]

I was hoping, Adam, Bill, just to ask about verification and validation testing. And I know there's a process and you've mapped out these time lines that includes VNV, I'm assuming. But I guess what -- where does that stand? And is there any time line specific for verification, validation, I guess, -- and then the real point of the question is to ask about on the manufacturing side, understanding VNV -- the agency has to take control manufacturing systems are in place? And where does that stand today? And then when do you plan to have B&B done in manufacturing in a place where you can move forward?

[Adam Sachs, executive]

It's a really good question. So some of the kind of the time line after the V1.0 is integrated and up and running, is all about verification and validation. It begins less formal and with subsystems and then culminates in some of the testing, which is kind of the end of system level, validation for the product. So the way to think about most of the work that we'll be doing any remediation after next spring, it is all about the system, how it performs in our kind of preliminary VNV testing that we perform on the subsystems, evaluating that, finding any issues that might occur in V&V.

And then burning those issues down and remediating them in order to decrease the risk of the V&V process. So one of the benefits, if I can call it that, of the time line shift here is decreasing some of the risk and pulling some of the risk out of the V&V process and into the earlier process of these remediations in the V1.0 build.

As far as manufacturing, that is part of what needs to be all in place. And we are well underway with our CM partners as well as internally, in order to build all of that out. So especially given the -- what we're discussing on today's call, I certainly don't anticipate any challenges with that from a time line perspective.

[Joshua Jennings, analyst]

And then I wanted to just ask about the integration challenges and where you stood earlier in the year in terms of locking in on 1.0 and the design and the go forward, does this delay -- was it caused or is there an opportunity to explore a differentiated visualization sensing for data collection enhancements for the system relative to where you started? Or just -- continue down the line in terms of what you've locked in from a design standpoint from 1.0 earlier in the year.

[Adam Sachs, executive]

Yes, it's a fair question. There's a lot of things that we're really excited about, as you guys know, from an advanced visualization standpoint, we're making sure that we can roll all of those things in shortly after our initial launch that, that being said, given the reduction in resources, our focus right now is almost entirely on remediating any of the challenges that we faced and then setting ourselves up for success through the V&V process and through FDA authorization.

[Operator]

The next question will be from the line of Caitlin Cronin with Canaccord Genuity.

[Caitlin Cronin, analyst]

Just to start off, in terms of clinical trial plans, are there any changes for your plans for pursuing other indications?

[Adam Sachs, executive]

No, not at this time other than that would be obviously expected with the time line change that we're discussing. We're still going to pursue other indications as quickly as we can. For instance the OUS opportunity gives us the ability to do that significantly more equally. And we are taking the extra time that we have now with our clinical engineering team to evaluate all these other procedures and really build up as best we can in anticipation of that.

[Caitlin Cronin, analyst]

And then any kind of risk to current or future hospital or surgeon partnerships given kind of this delayed time line?

[Adam Sachs, executive]

I think the risk is relatively low, but there is always some risk. It's a competitive market. That being said, our hospital partners have been incredibly supportive of what we're doing. What we're doing remains very differentiated. And frankly, my personal biggest disappointment in taking extra time here is that it will take that much longer for us to be able to deliver this really important product for our hospital and surgeon partners that need it.

[Operator]

At this time, there are no additional questions registered in the queue. So that will conclude today's Q&A session as well as today's conference call. Thank you all for your participation, and you may now disconnect your lines.